BEYOND EDUCATION AND FAIRNESS: A LABOR MARKET TAXATION MODEL FOR THE GREAT GATSBY CURVE

Lars Lefgren (), Frank McIntyre and David P. Sims

Economic Inquiry, 2015, vol. 53, issue 2, 962-978

Abstract: type="main" xml:id="ecin12185-abs-0001"> Applied researchers have been drawn to models that attribute the demonstrated cross-country differences in intergenerational income transmission to government failures to invest in the human capital of poor children. To highlight another potential mechanism, the disincentive effects of labor market taxation and redistribution, we present a simple model that can explain cross-country differences in intergenerational mobility and other previously observed empirical patterns. Empirical tests using data on income mobility, tax rates, and public expenditures largely support the model predictions. We conclude that the common presumption that intergenerational mobility largely measures fairness or opportunity, and the resultant policy recommendations, are premature . ( JEL D31, J24, J62)

Date: 2015
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